Housing Finance Redo Should Advance Soon, HUD’s Donovan Says
Lawmakers and regulators should move forward this year with plans for overhauling the U.S. mortgage finance system, Housing and Urban Development Secretary Shaun Donovan said today.
“We need to ensure that we’re doing everything we can to put in place the housing finance system of the future,” Donovan said in an interview.
President Barack Obama as well as Democrats and Republicans in Congress have said they want to wind down and replace Fannie Mae (FNMA) and Freddie Mac, the two mortgage financiers seized by the government in 2008. To date, no detailed plans have emerged.
In the meantime, the two companies, known as government- sponsored enterprises, have started posting regular quarterly profits as the housing market rebounds.
Fannie Mae and Freddie Mac together back about two-thirds of home-loan originations. The Federal Housing Administration, a government mortgage insurer, backs about 20 percent. That leaves taxpayers on the hook for losses in the event of another real- estate crash.
“Reform of the failed model of the GSEs, the private gains and socialized losses model, is a top priority and it’s critical that we make progress this year toward that goal,” Donovan said.
Clearly defining the mission of the FHA, which is an arm of HUD, should be part of that overhaul, Donovan said. He is scheduled to testify at a House appropriations hearing Wednesday about the budget at the FHA, which is facing a shortfall due to losses on loans it insured as the housing market crashed.
The FHA could require a taxpayer subsidy of nearly $1 billion this year, the first in its history, White House budget analysts said April 10. The agency has taken steps including raising fees to offset some of its losses.
Meanwhile, Fannie Mae and Freddie Mac (FMCC) have begun posting regular quarterly profits after taking $187.5 billion in aid from Treasury, potentially decreasing political pressure to replace them.
By fiscal year 2023, if they still exist, the two companies could send taxpayers $51 billion more than they received in aid, White House budget analysts said.
Fannie Mae and Freddie Mac, which were created by the federal government before becoming publicly traded companies, buy mortgages from lenders and package them into securities on which they guarantee payments of principal and interest.
To contact the reporter on this story: Clea Benson in Washington at email@example.com
To contact the editor responsible for this story: Maura Reynolds at firstname.lastname@example.org